Financials are the worst of the 10 sectors in the S&P 500, and the Financial Select Sector SPDR fund, or XLF, is down 1.6% — looks like those bearish options trades were right on. But the slide comes after JPMorgan posted a 34% rise in earnings, which solidly beat expectations. Wells Fargo, on its end, slightly beat the Street, posting EPS one cent above analyst estimates.

Both banks’ earnings jumped from a low starting point. Last year’s third-quarter results from banks were mostly lackluster, as trading volume fell and volatility spiked.

Considering stocks have been higher all day despite a dearth of catalysts, some market participants are pointing to Republican candidate Mitt Romney’s perceived victory over President Obama in last night’s debate as a potential catalyst for the rally.

“U.S. equities are getting a Romney push,” says Andrew Brenner, global head of international fixed income at National Alliance. “Seems like the marketplace believes Romney is better for stocks and the economy.”

The Dow recently rose 91 points, or 0.7%, to 13583, a fairly sizable move compared to the recent action over the last few weeks. Bank of America, Alcoa and J.P. Morgan are leading the blue chips higher. The S&P 500 is up 0.7% to 1462, with the financial and energy sectors among the top performers.

Stocks sold off into the close today. Why? Well, maybe it was this, as reported by Dow Jones' Gabriele Steinhauser:

Three of the euro zone's richest countries dealt a blow Tuesday to hopes that the euro zone's bailout fund could soon lighten the debt burden of states such as Spain that are in the throes of severe banking crises.

The finance ministers of Germany, the Netherlands and Finland said national governments should continue to be responsible for resolving problems created by bad lending decisions made by banks before they start being policed by a proposed new euro-zone bank supervisor.

Their statement, issued after a three-way meeting in Helsinki, appeared to undermine a pledge euro-zone leaders made in June to shield governments from the fallout produced by expensive bank failures. It could also renew concerns over the government debts of Spain, which is in the midst of a deep banking crisis caused by a real-estate collapse.

Basically, the markets were led to believe that Europe's new bailout fund would be open to banks, once a pan-European banking regulator was put in place. But what this latest bit of news seems to say is that three of the only nations in Europe with any money don't like that idea, and want the banks that were having problems to remain their own countries' problem.

The Dow Jones Industrial Average slid into the close, as the outcome of this meeting was working its way through the market. The Dow finished down more than 100, about 0.8%; the S&P 500 lost 1.1%, and the Nasdaq Composite lost 1.4%.

Bank of America seriously ramped up its layoff plans, saying it will lose 16,000 employees by the end of this year, rather than the end of next year. Merry Christmas, huh?

BofA stock has had a good run this year, but where’s the company going to find revenue growth if it’s slashing so much? That’s the big unanswered question. Dan Fitzpatrick stopped by the Markets Hub desk to break it down.

It’s not just BofA, by the way, as Dave Benoit explains over at Deal Journal. All the big banks are cutting staff amid a downturn in the industry.

For more MarketBeat and other streaming markets coverage from The Wall Street Journal, point your mobile browser to wsj.com/marketspulse.

The most interesting part of a leveraged loan market survey to be released today is how badly the participants underestimated the amount that banks are lending.

The survey was conducted by the Loan Syndications and Trading Association (LSTA), a market trade group, and included 296 investors, bankers and lawyers.

New pro-rata loans – the revolving loans provided principally by banks – grew 15% in the twelve months through June 2012 to $291 billion compared to $254 billion in the same period last year, according to data from Thomson Reuters LPC. That’s well above the roughly $250 million forecasted by the LSTA survey participants – they were asked both in December and in August – and it eclipses the $177 billion of loans sold to institutional investors over the same time period.

That’s essentially what Bernstein analyst Brad Hintz concludes in a research note to clients this morning. Hintz, the former CFO at Lehman Brothers, isn’t sure that large capital markets banks “can reasonably be considered investable for holding periods under 12 months.”

Both Goldman Sachs and Morgan Stanley are trading “well below their theoretical liquidation value,” Hintz says, which is what justifies their outperform ratings. But he says their stock prices are highly correlated with European banks, and research suggests the group will move in tandem, particularly as the Libor scandal unfolds in the coming quarters.

In the near term, investors in both firms “are likely to be in for a bumpy ride.”

The market got itself into rally mode this morning on the assumption that Spain was basically going to get a EUR30 billion no-strings-attached bailout for its ailing banks, part of a larger EUR100 billion bailout fund.

Not only are the strings still up for debate, but the German court is holding up the entire ball of yarn. Once again, we’re seeing a deal isn’t a deal in Europe until the money’s deposited.

The Dow, which had risen as much as 97 points, slipped into the red and is now marginally higher, taking its cues from the euro, which has dropped about 0.6% to $1.2242. European stocks are generally higher, but that’s not translating over here. The Nassdaq Comp is down 0.4%, and the S&P 500 is down 0.1% at 1349.

Most sectors are down, with tech and energy posting the widest losses. Staples, telecom, and utilities are rising. On the Dow, IBM, Intel, Merck, and Alcoa are leading the index lower (on a dollar basis). DuPont, United Tech, and Wal-Mart are leading the gainers.

Spain’s critical 10-year bond yield dropped sharply this morning, after reports broke out that Spain had secured a EUR30 billion advance on its bank bailout funds and more time to work off its budget deficit. Critically, the issue of whether Spain or the European Stability Mechanism (ESM) would have to backstop the funds seemed to be settled in favor of Spain, in that it would not have to guarantee the funds.

Talking about rattling investor confidence: Two big news stories are shaking the financial industry this morning.

First is WSJ’s front-page story detailing Barclays paying a record $453 million in fines after admitting its traders and executives tried manipulating interest rates. The Journal reports investigators in the U.S., Europe and Asia have been probing alleged wrongdoing in this arena for about two years in the aftermath of the financial crisis.

The Barclays settlement is the biggest yet. But some of the details from this story show exactly why investor confidence is so low right now. From WSJ:

Emails and instant messages disclosed in the bank’s settlement show how Barclays’s traders tried to manipulate rates to benefit their own trading positions.”This is the way you pull off deals like this chicken,” one trader told another trader in March 2007, according to the U.K. regulator. “Don’t tell ANYBODY.”

“These two events this week underscore that the banking industry has become its own worst enemy,” says Doug Kass, a hedge-fund manager at Seabreeze Partners. “The Dodd-Frank legislation and the other restraints currently being considered on the commercial banking industry seem justified by the relentless abuse of power and the aggressive use of client deposits in risk-taking strategies.”

Stocks are slumping this morning, with the Dow down more than 100 points. Financials are leading on the downside, with J.P. Morgan is down 3% and Citigroup off 2.3%. Goldman Sachs, Morgan Stanley and Bank of America are each down more than 1%.

The European Central Bank Friday said it had decided to widen the range of securities that it accepts from euro-zone banks in exchange for its loans. Vincent Cignarella stopped by the Markets Hub this morning to explain the move.

It’s really just another band-aid, Vincent says. “The banks are running out of collateral, that’s the reality of the situation,” he said. “You’ve pledged mom’s silverware, and now you’re down to the everyday dishes.”

We also talked about next week’s summit, Spain’s dilemma, and the ramifications of European nations trying to fund a bailout program for other European nations, for instance, Italy borrowing at 6% to lend to Spain at 3%.

Among the myriad “headwinds” facing the banks has been the specter of downgrades from Moody’s. Well, you can check that one off the list after yesterday, and maybe investors weren’t so worried about it after all.

Most financial stocks moved higher and bonds rallied, and while investors are certainly relieved that the four-month overhang is over, investors had plenty of time to prepare themselves — Moody’s first announced the review in February, after all.

Financials are the S&P 500′s best-performing sector, rising 0.9%, while the KBW Bank Index, a collection of large capitalization financial stocks, is up 1%.

Morgan Stanley is leading the pack, up 2%. Moody’s cut the firm’s long-term debt rating by two notches to Baa1 from A2, in a move that will likely raise its funding costs and could mean a collateral call of roughly $6.7 billion. But Moody’s spared the firm from a three-level downgrade, allowing it avoid a worst-case scenario.

Stocks are edging higher morning trading, with financial stocks leading the way, as investors express a bit of relief that the bank downgrades from Moody’s weren’t as steep or severe as previously expected.

The Dow rose 66 points, or 0.5%, to 12639. The S&P 500 is up 6 points, or 0.4%, to 1331. Financials are the S&P 500′s biggest gainers, with J.P. Morgan up 2.5%, AIG up 2.1% and MetLife gaining 1.6%.

“Morgan Stanley is the clear winner,” declared David Konrad, an analyst at Keefe Bruyette & Woods. “Although a downgrade is not a positive, we are encouraged that the downgrades were in line or better than expectations, and it appears that a headwind has been removed.”

European banks? Yep, European banks. Few investments at the moment generate as much disdain as much as European bank stocks. But if you’ve got a strong stomach, and a hankering for beaten-down, high risk-reward plays, they may be your bag. Jack Hough explained on the Markets Hub this morning.

What should investors make of the high-profile losses reported by J.P. Morgan yesterday, and how should they view the entire banking sector in light of it? MarketWatch’s Chuck Jaffe visited the Markets Hub this morning and gave us his opinion.

About MarketBeat

MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.